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The thought of calculating how much you’ll need to sustain you through retirement may seem overwhelming. While a financial professional can certainly assist in the process, it’s useful to make some of your own observations so you’re fully aware of your own situation.

With that in mind, let’s run through the basic process of calculating the amount of money you will require to meet expenses and maintain your lifestyle during your golden years.

  1. Add up all your retirement income sources anticipated at the first year of retirement and multiply it by 25 years.

The difference will be a rough estimate of the minimum amount you will need during your golden years. How do your savings look so far? If you’re on target or have surpassed the needed amount, you’re off to a great start. If you’re behind, however, talk to a financial professional about a plan that can help boost your savings so they’re in line with your retirement goals.

  1. Calculate 75 percent of your current income.

If you currently earn $250,000 per year, you would need approximately $187,500 per year if you retired today. Reducing your yearly salary by 25 percent takes into account any extra income you may be currently earning, such as funds you’re saving and investing for retirement. It also figures in expenses that will likely be reduced during retirement, such as a mortgage or other loans that would be paid off by that time.

  1. Estimate the inflation on your projected retirement income.  

Let’s say inflation grows at a rate of 3 percent per year. If your current income is $150,000 in today’s dollars and you have a goal of retiring in a decade, then your base income need would would be $201,587 per year when you retire in 2025. To arrive at the total amount you’d need to fully fund your retirement, multiply that number by 25 years, which is $5,039,675.

Retirement Checklist for High Net Worth Individuals

Now that you’ve calculated your retirement income needs, let’s go through a list of do’s and dont’s for how to properly manage retirement income as a high net worth individual:

  • DON’T make too many high-risk investments. Consider your age and income needs. Are you nearing retirement? Then the risk level of your investments should be more conservative. Talk to a financial professional if you have questions.
  • DON’T forget about taxes. Just because you’re retiring doesn’t mean you won’t have yearly tax obligations. You will be taxed according to the income you receive each year during retirement.
  • DON’T spend too much yearly income on paying down debt. While it’s a good goal to eliminate large debts such as your mortgage payment as soon as possible during retirement, make sure you’re also reserving enough funds to meet your basic income needs.  
  • DO take increased inflation into account. As we previously discussed, your retirement income needs should be based on estimated inflation, not today’s dollars.
  • DO have a long-term cash distribution plan. What are your retirement goals and plans? Do you have dreams of traveling extensively? Buying a second home? Making sure you’re accounting for the extra income that will be required for such purchases and experiences. Your long-term plan should also include your life expectancy. Work with a financial professional to identify any shortfalls in your savings so you can work to correct them sooner rather than later.

Bottom line: Proper planning and smart decision making about your retirement income will boost the chances of your financial success and living out your dreams.


Author Ron L. Brown, CFP®

Ron is a CERTIFIED FINANCIAL PLANNER™ and President of R.L. Brown Wealth Management. He specializes in retirement, estate, and business planning for professionals and entrepreneurs. Ron assists his clients with creating a financial plan to ensure they are able to live their ideal lifestyle during retirement and leave a strong legacy for their family. Ron has been featured in The Wall Street Journal, US News, Yahoo Finance, Investopedia, and numerous other high profile financial publications.

More posts by Ron L. Brown, CFP®
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